If I close a limited company, will I be personally liable for its debt?
In most situations, you will not become personally liable for the debts of a limited company. A limited company is classed as a separate entity to the directors and shareholders who are associated with it. However, that doesn’t mean that as a director, you can never be held liable for the company’s debts, and there are several scenarios where this may be the case, such as if you sign a personal guarantee.
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What is a liability?
In terms of business, liability refers to a debt for which your company is responsible. This liability could come in the form of a loan, asset finance, unpaid invoices, accumulated tax or rent falling due. In the case of a limited company that cannot meet its liabilities, as director, you have the protection of limited liability.
Generally, this means that directors cannot be held personally responsible for the debts of a limited company unless they have signed personal guarantees.
When can a director be held liable for company debts?
Although a limited company’s liabilities are its own and don’t attach to the director, there are certain circumstances where a director may be held responsible. Examples of these are below but are not limited to:
- Personal Guarantees
The most common circumstance in which a director could be liable for their company’s debt comes from personal guarantees. If you have signed a personal guarantee, you will be liable for the debt if the company cannot meet its obligations. - Trading whilst insolvent
Trading whilst insolvent occurs when a company continues trading while the directors know it’s insolvent, increasing its deficit. If, as director, you allowed this, or have failed in your duties as a director, you may lose the protection of limited liability and be held liable for some company debts. - Overdrawn Directors Loan Account
If you have borrowed money from the company which has not been repaid, and as a result, you have an “overdrawn” director’s loan account, then a liquidator could pursue you to recover the amount.
What are the consequences of being liable for company debt?
If, as a director, you are found to be personally liable for company debts, then just like any personal debts, you will be responsible for their repayment.
If you cannot repay these liabilities, then you may have to consider selling or refinancing assets. If this is not an option, creditors may force you into bankruptcy.

What help is available?
If you are looking to close your company and are worried about being liable for your company’s debts. We can help guide you on the best way forward and let you know what you could be liable for.
Closing the company – writing off debts
If a company is insolvent and can no longer trade, it may enter a Creditors Voluntary Liquidation (CVL), which would see the company closed down and the assets sold. The funds raised from the sale will be used to pay for the liquidation process, and any funds left over will be distributed equally amongst the creditors. Any remaining unsecured company debt is then written off.
How to write off company debt and start againIf you are liable, what help is available for personal debt?
If your company’s limited liability protection is voided, you will be liable for the company’s debts, and ultimately responsible for repaying them. There are options available to help you if you run into financial difficulty, but they differ to insolvency procedures for limited companies, and your options depend on the scale of these debts and your personal financial situation.
One of these options is an Individual Voluntary Arrangement (IVA). An IVA is a formal repayment process that consolidates your debts into a single monthly repayment, tailored to your circumstances so they’re affordable. The arrangement involves you repaying your debt over five years; after which, the remaining unpaid debt is written off.
If your debts don’t justify an IVA or the chances of you paying them back mean the arrangement isn’t viable, you may be better off going bankrupt.
Bankruptcy writes off your debts, using the funds generated from selling personal assets to repay the debts. You have very little control of the process and going bankrupt will bar you from employment in certain professions.
More options for personal debtsIn summary
Company debts are separate from your personal debts, so you would usually not be held personally liable when a company goes through liquidation. However, as outlined above, there are instances when you, as a director, would be held personally liable. In those situations, liabilities which emerge as a result may push you into personal insolvency.

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